Ach Challenge 1 – Entering International Trade

Topics: Switzerland, European Union, World Trade Organization Pages: 7 (2227 words) Published: October 13, 2012
1. Introduction
This case study analysis is based on the case “ACH Challenge 1 – Entering International Trade”. American Colonial Heritage Inc. (hereinafter named “ACH”) is a US American producer of furniture that presently only sells its products in the USA and Canadian markets and does marginal exports to the UK. However, these exports have not proved to be successful so far. The company is fictional and the strategic decision to be taken during the case study analysis is dated back in 2006. Thus, no developments after this year are the basis of this analysis. Furthermore, the case is examined from the point of view of Ms Alexandra Jones who is a member of the International Expansion Team at ACH.

2. Problem Statement
ACH is in the position of facing stagnant demand in its present markets. In order to increase the sales volume, diversify the revenues and pursue a more international strategy, it has been decided by the management board that the company’s products shall be exported and sold in a European country . Additionally, the management board specified that the products shall be exported to Portugal, Switzerland or Denmark. The potential economic effects of an exporting strategy can be seen in figure 1 which indicates that in the “Foreign” market an additional profit “B” can be generated.

Figure 1: Profits in the Home and Foreign market: National exporting Firm (Source: Brakman et al (2009), p. 142)

Summarizing, it is the task of Ms Jones to select of the above mentioned countries and propose it to the management board as a potential export market in order to maximize the above mentioned additional profit “B”.

3. Analysis
In order to propose the most attractive country to the management board of ACH, a thorough analysis of the internal environment of ACH as well as the external environment in the individual countries has to be conducted. 3.1. Internal Environment

ACH was founded in 1926 Charlotte, North Carolina by Peter G. Collins and Arthur L. Stevens. Today, ACH is one of the top five furniture manufacturer in the USA, generated a revenue of approximately USD 500m and employs 3000 people in the USA. Furthermore, the business is owned by the Stevens family (50%), Mount Rushmore Furniture (30%) and the Libelula Holding (20%). Mount Rushmore Furniture is a competitor of ACH which aims at internationalizing its business activity through the acquisition of a share if ACH. Thus, the export of ACH products to Europe is supported by Mount Rushmore Furniture. The Libelula Holding has pure financial interests. ACH is organized in a functional organizational structure (see fig. 2). Decision processes are reported to be rather slow.

Figure 2: ACH Organizational Structure

The company produces upper end indoor home furniture in a very classical and timeless style i.e. the products are designed as reproductions of American colonial furniture. The distribution of these products is realized via retailers and the company´s own flag ship stores called “1776 stores”. 3.2. External Environment

On a general level, Portugal has a population of 10,6m inhabitants; Switzerland has 7,5m and Denmark 5,5m.

3.2.1 Macro Environment
The macro environmental framework conditions in the individual countries are to be examined in the dimensions of the political, economic, social and technical business environment . The political framework conditions for importing products into a country are mainly shaped by the currency and existing trade barriers. In contrast to Switzerland, both Portugal and Denmark are members of the EU. Nevertheless, extensive trade agreements between the EU and Switzerland are existent . All eligible countries are members of the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT). Additionally, all three countries have different currencies. Portugal is a member of the European Monetary Union (i.e. the EURO is used), the currency of Switzerland is the Swiss Franc...
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